I have been reading a fascinating book by David Dreman called "Contrarian Investment Opportunities", along with a lot of well thought out discussion on the Efficient Market Hypothesis (EMH) and the phsycology of investors (which leads to confimation of my belief that EMH is nonsense.), he proposes a hypothesis for investing in out of favour or contrarian shares, based on low PE.
Dreman presents a lot of research and evidence to confirm that investing in the most out of favour shares, based on their very low PE, will result in superior performance in all markets. For any investor I would recommend it as a must read.
In line with his hypothesis I decided to run a trial portfolio based on a quick pick of 18 of the most unloved companies on the ASX, I excluded small caps and just picked the 18, i ran the test as if I bought $10000 worth of each company, and on my spreadsheet added $360 as brokerage costs.
I did exclude a couple of candidates to provide sector balancing.
The ASX is at a 7 year high so its a perfect time to buy to test the theory!
Here is the portfolio,
I have also started a TWIRR spreadsheet to track performance.
twirr pe.xlsx (47.06 kB - downloaded 239 times.)
